sports.jpgLondon-based Betex has found a novel — and legal — way to exploit the Chinese obsession with gambling.

software is installed in a growing number of retail outlets and it
allow Chinese punters to bet on European and US sports events — as
well as traditional numbers games. The business is growing rapidly.

has just announced its “Great Leap Forward” — an expansion into seven
more provinces which will add at least 860 stores to its network. It
currently operates in six provinces and has around 1,800 stores
generating revenue.

The AIM-listed company has an interesting
business model. It pays 35% of the gross fees earned from the terminals
to the owners of the retail outlets where its software is installed.
After deducting operational costs, the net profit is split 70:30
between the company and the software's designer, who now works for the
company. Early indications are that net profits will be around 8% to
12% of gross fees.

Betex's first move into Chinese sports
betting came a year ago when it won contracts to manage the state
sports lottery in the provinces of Hebei and Guizhou. Right from the
start, it says the Chinese business has been performing above
expectations. It now plans to also offer a lottery service for mobile
phone users in three provinces.

Its decision to roll out its
products gradually, province by province, has much to do with the way
the gambling market is regulated in China. But it has also is a good
risk-reduction strategy and other western firms engaging with China
should take note.

China's lottery market is worth $8.6bn and in
2004 it was the worlds tenth largest by sales. It has been growing at
at a compound annual growth rate of 36%.

Despite strict laws
against gambling in any form other than the government-approved
lottery, illegal gaming activity in China is estimated to be worth an
astonishing $75bn, and the lion's share goes on bets on football

To lure this money back to the regulated market,
Chinese authorities began offering football lotteries five years ago,
starting with games from Italy's Serie A and the UK's Premier League —
European matches were seen to be “cleaner” than Chinese soccer matches.
Ironically, a match-fixing scandal rocked Italy's Serie A this year.

many of its counterparts in the west have been hard hit by the
clampdown on internet gambling — which Betex also offers — the
company appears to have found a real winner with sports betting in
China and it enjoys the much-vaunted “first mover advantage”.

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